Intel warning sends shares crashing around the world

Hopes of recovery in technology sector shattered as profit forecasts are slashed.

A warning from US computer chip manufacturer Intel sent stock markets into a tailspin yesterday, dashing hopes of a recovery in the fortunes of the technology sector.

In London the TechMark 100 spiralled to its lowest point since the index was set up 2 years ago, as investors fled the sector.

FTSE 100 shares were only saved from a 100-point fall by the lack of traders at their desks as an estimated one in five across the City took the afternoon off to watch the England v Argentina match.

By the close the London market had managed to claw back some ground, despite a poor opening on Wall Street, but the Footsie still ended at its lowest point for eight months.

Intel's warning late on Thursday night that sales have been sluggish, especially in Europe, sent analysts scurrying for their red pens. Profit forecasts were slashed after the company said earnings for the second quarter of this year will come in below even the most pessimistic forecasts. When the stock opened on Wall Street it immediately dropped more than 10% and was 18% lower later in the day.

The warning hurt chip manufacturers across the globe. In New York, Intel's main rival Advanced Micro Devices and tech leader Motorola were both sent deep into negative territory. On the Continent German chip maker Infineon and its French counterpart STMicroelectronics dropped heavily.

"It's a rout," exclaimed one dealer. "Lord knows how much further down the sector would have been if we'd lost to Argentina, and I'm only joking slightly about that."

Internet stocks were also knocked lower with Cisco and Microsoft posting losses. In the Far East, Taiwan Semiconductor Manufacturing Co, the world's largest contract microchip maker, which counts former BT boss Sir Peter Bonfield among its non-executive directors, dropped more than 5%. The rout was not confined to chip and software companies. In Finland shares in mobile phone manufacturer Nokia hit a three-year low while its Swedish rival Ericsson, which is hoping to raise £2.1bn in a rights issue soon, dropped more than 7%.

Vodafone became London's most heavily traded shares as it hit a 4-year low at one point. Almost 650m shares changed hands and the stock ended down 1.5p at 95p having dipped under 90p at one point.

Vodafone was closely followed by mmO2, the mobile phone business spun out of BT six months ago, which sank to a new record low of 37.75p.

The gloom created by the Intel warning was deepened by resurgent fears about corporate governance in top US companies. Recent accusations of tax-dodging levelled at senior executives from Tyco have further weakened investors' fragile confidence in corporate America. Tyco shares dropped 30% yesterday to their lowest level for almost six years.

Analysts on Wall Street said the Intel warning also overshadowed better-than-expected US employment data. The country's unemployment rate fell to 5.8% in May from 6% in April, according to the labour department.

"The market is reacting to the Intel news but I think that's ridiculous. The more important news is the employment numbers," said Jon Burnham at Burnham Asset Management. "The economy is recovering but people are ignoring the good news because they're upset about accounting issues and corporate malfeasance."